The Death Of Dividends, More Money Out Of Consumer Pockets

Companies keep cutting dividends. Some are pressed for cash because of operating losses. Others are being constrained by higher debt service. Banks need to preserve capital.

The problem is becoming big enough that it could actually be a blow to consumer confidence and consumer spending.

According to the AP, "Already this year, seven companies in the Standard & Poor’s 500 index have decreased their dividends, removing some $12 billion from shareholders’ pockets in the coming months." The rate of the reductions is the greatest in 50 years.

The number does not account for the huge reductions in dividends at most big banks which occurred at the end of last year. Citigroup (C), Wells Fargo (WFC), Bank of America (BAC), and JP Morgan (JPM) have already made cuts or are candidates to do so. Firms in media from The New York Times (NYT) to newspaper chain McClatchy (MNI) are low on income and high on debt. Any company with dwindling cash will be on the list of firms which are likely to need dividend reductions to preserve their balance sheets.

The $12 billion is probably closer to $50 billion if the figures from late last year are dropped in. As the economy gets worse and corporate losses mount, the number could balloon up to $100 million before the end of the first half.

For some investors, dividends are a substantial part of their incomes. For retired people a loss of dividend cash could mean the loss of the ability to pay for housing or essentials.

As dividend cuts move from company to company, more capital is taken out of the hands of consumers who already have barely enough cash to make ends meet. It is another one of the unforeseen domino effects of the growing economic turmoil. And, it is another hole for the stimulus package to fill in.

Douglas A. McIntyre